Fayoum University Engineering Economy

Faculty of Engineering 1st year

mechanical Engineering Dept. .

Sheet
Breakeven analysis
1) Handheld fiber-optic meters with white light polarization interferometry are
useful for measuring temperature, pressure, and strain in electrically noisy
environments. The fixed costs associated with manufacturing are $800,000 per
year. If a base unit sells for $2950 and its variable cost is $2075, (a) how many
units must be sold each year for breakeven and (b) what will the profit be for sales
of 3000 units per year?2

2) Hambry Enterprises produces a component for recycling uranium used as a

nuclear fuel in power plant generators in France and the United States. Use the
following cost and revenue figures, quoted in U.S. dollars per hundredweight
(cwt), recorded for this year to calculate the answers for each plant.

a) Determine the breakeven point for each plant.4

b) Estimate the minimum revenue per hundredweight required for next year if
breakeven values and variable costs remain constant, but fixed costs increase by
10%.

c) During this year, the French plant sold 950 units in Europe, and the U.S. plant
sold 850 units. Determine the years profit (loss) for each plant.

d) Hambrys president has a goal of $1 million profit next year at each plant with no
revenue or fixed cost increases. Determine the decreases in dollar amounts and
percentages in variable cost necessary to meet this goal, if the number of units
sold is the same as this year.

3) Samsung Electronics is trying to reduce supply chain risk by making more

responsible make-buy decisions through improved cost estimation. A high-use
component (expected usage is 5000 units per year) can be purchased for $25 per
unit with delivery promised within a week. Alternatively, Samsung can make the
component in-house and have it readily available at a cost of $5 per unit, if
equipment costing $150,000 is purchased. Labor and other operating costs are
Fayoum University Engineering Economy
Faculty of Engineering 1st year
mechanical Engineering Dept. .

estimated to be $35,000 per year over the study period of 5 years. Salvage is
estimated at 10% of first cost and i _12% per year. Neglect the element of
availability ( a ) to determine the breakeven quantity and ( b ) to recommend
making or buying at the expected usage level.21